Involuntary Unemployment : the Elusive Quest for a Theory
(2005)
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- Abstract
- This paper addresses the issue of why Keynesian economists have had such a hard time in giving the concept of involuntary unemployment a place in economic theory. Is the gradual demise of this concept a manifestation of some inner defect in economic theory or is it due to some intrinsic weakness in the concept itself, which limits its usefulness when it comes to economic theorising? I have recently published a book which attempts to answer this question, and my aim in this paper is to present its main results. I start by characterising Keynes's programme as consisting of the following four elements: 1) demonstrating the existence of involuntary unemployment; 2) demonstrating that wage rigidity can be exonerated as its cause; 3) giving a general equilibrium or interdependency explanation of the phenomenon; 4) demonstrating that demand stimulation is the proper remedy for the problem. Next, I bring out four conceptual ambiguities that have plagued discussions about involuntary unemployment: the confusion between involuntary unemployment and underemployment; the confusion between involuntary unemployment in the individual disequilibrium sense and involuntary unemployment in the frustration sense; a loose understanding of the notion of full employment; and, finally, a less than rigorous definition of the notion of rigidity.
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Citations
De Vroey, M. (2005). Involuntary Unemployment : the Elusive Quest for a Theory (ECON Working Papers 2005/04). https://hdl.handle.net/2078.5/130173